Booz Allen Hamilton Holding Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2023 (the second quarter and first half of fiscal 2024). Amounts below are in U.S. dollars; financial statement figures are consolidated and unaudited.
Business context
Booz Allen provides consulting, technology, analytics, engineering, digital, mission operations and cybersecurity services. It reported one operating segment and had approximately 33,100 employees. The U.S. government generated 99% of quarterly revenue and 98% of first-half revenue; the Defense, Intelligence and Civil client groups accounted for most sales.
Financial results and key metrics
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue | $2.666 billion, up 16.0% year over year | $5.321 billion, up 17.0% |
| Operating income / margin | $267.0 million / 10.0%, versus $223.9 million / 9.7% | $501.4 million / 9.4%, versus $431.1 million / 9.5% |
| Net income attributable to common stockholders | $170.7 million, essentially flat year over year | $332.1 million, up 7.4% |
| Diluted EPS | $1.29, versus $1.28 | $2.51, versus $2.31 |
| Net cash from operating activities | Quarterly figure not clearly presented in the financial statements | $(118.9) million, versus $227.1 million provided |
| Free cash flow (company-defined non-GAAP) | $(64.3) million, versus $256.7 million | $(146.4) million, versus $197.4 million |
First-half revenue growth reflected demand and headcount increases, including approximately $69.9 million from EverWatch and an $18.3 million favorable adjustment to the claimed indirect-cost provision. The adjustment increased first-half operating income by $18.3 million and net income by $13.5 million, or $0.10 per diluted share. Excluding that adjustment and other items identified by management, first-half adjusted operating income was $541.6 million and adjusted diluted EPS was $2.76; these are non-GAAP measures.
Quarterly operating margin improved, while first-half margin edged down. Management cited strong contract performance and cost management, offset by higher billable expenses. For the first half, the company reported a $27.5 million DOJ-related legal matter reserve among its non-GAAP adjustments. Interest expense rose 57.9% for the quarter and 51.4% for the first half, largely due to higher rates and the new notes; lower other income also weighed on the comparison, which included a prior-year divestiture gain.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $557.3 million at September 30, versus $404.9 million at March 31. Accounts receivable, net, was $2.010 billion, up from $1.775 billion.
- Total debt was $3.430 billion, up from $2.812 billion; long-term debt, net of current portion, was $3.389 billion. The balance included a $650 million 5.95% unsecured note due 2033 issued in August. Term Loan A carried a 6.67% rate at quarter-end.
- Management reported total liquidity of approximately $1.6 billion: $557.3 million in cash and $998.7 million available under the revolving facility. The $1.0 billion revolver had no outstanding balance at September 30. The company complied with its debt financial covenants.
- First-half operating cash flow was affected by the $377.5 million DOJ settlement payment. Financing activities included debt issuance and repayments, $209.2 million in share repurchases and $125.1 million in dividends paid. The company repurchased 1.7 million shares for $180.1 million in open-market purchases and reported $675.9 million remaining under its repurchase authorization.
- A quarterly dividend of $0.47 per share was announced after quarter-end, payable December 4, 2023.
Material changes, outlook and risks
- Backlog: Total backlog was $35.0 billion at September 30, up 10.1% from a year earlier. Funded backlog was $6.3 billion; unfunded backlog was $10.1 billion and priced options were $18.6 billion. Remaining performance obligations were $9.8 billion, versus $7.9 billion at March 31; management expected to recognize about 75% over the next 12 months and 85% over the next 24 months. Backlog conversion is not assured, particularly for unfunded work and options.
- Management outlook: No specific revenue, earnings or margin guidance is provided in the supplied filing text. Management expects cash, operating cash flows and available revolver capacity to meet anticipated cash requirements over the next 12 months.
- DOJ matter: The company paid $377.5 million under a settlement resolving civil claims relating to certain cost-accounting and indirect-cost practices for April 2011–March 2021. The agreement contains no admission of liability; the covered claims were released and the qui tam claim dismissed with prejudice. The SEC concluded its related investigation without recommending enforcement action.
- Government-contract exposure: Government audits and investigations continue, including matters involving labor time reporting, procurement integrity and classified-information access. The DCAA’s fiscal 2022 audit findings prompted the $18.3 million provision reduction, but final indirect-cost rates remain subject to negotiation. The company retained approximately $328.9 million for estimated indirect-cost adjustments.
- Other contingencies: The company is appealing a District of Columbia tax assessment. It reported potential future tax expense of approximately $40.4–$64.3 million, net of federal benefit, if related contested and similar tax positions are resolved adversely. Federal tax refund claims are also contingent on completion of IRS audits.
- Operating risks: Results depend heavily on U.S. government appropriations, procurement timing and contract awards. Funding delays, shutdowns, spending reductions, competition, hiring and retention needs, contract cost overruns, audits, and the ability to convert backlog could affect revenue, margins and cash flow. Management cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether revenue growth and backlog convert into funded work and sustained margin improvement, particularly given the high U.S. government revenue concentration.
- The cash-flow impact of settlement payments, receivable growth and working-capital timing in subsequent quarters.
- Debt levels, variable-rate interest exposure and the cost of the 2033 notes; $550 million of interest-rate swaps were outstanding at quarter-end.
- Final outcomes of indirect-cost audits and negotiations, pending government reviews, the tax appeal and IRS audits.
- How much of reported results reflects recurring operations versus the $18.3 million favorable cost-provision adjustment and other unusual or management-adjusted items.